LIC has launched a recent life insurance coverage product. LIC Jeevan Utsav (Plan no. 871).
On this publish, let’s break down LIC Jeevan Utsav and see the way it works.
The great and the unhealthy factors, and the returns you’ll be able to anticipate. And eventually, do you have to make investments?
LIC Jeevan Utsav (Plan 871): Non-linked, Non-Collaborating Plan
Non-linked means LIC Jeevan Utsav is NOT a ULIP. It’s a conventional plan.
Non-participating plan means the returns from LIC Jeevan Utsav are assured. In different phrases, you’ll know upfront how a lot you’ll get (and when) from the plan. No confusion surrounding bonuses and so on.
This additionally means you’ll be able to calculate XIRR (or web returns) from this plan before you purchase the plan.
Notice “Assured returns” doesn’t imply good returns. Can be poor returns. That’s one thing we are going to work out later on this publish.
For extra on various kinds of life insurance coverage merchandise and how one can decide inside 2 minutes which plan you might be shopping for, check with this publish.
LIC Jeevan Utsav (Plan 871): Salient Options
- Non-linked and Non-participating plan
- Restricted premium cost plan: This implies coverage time period is longer than the premium cost time period.
- Complete Life Plan: Coverage will run till you might be alive. No idea of maturity right here. And that the demise profit will definitely be paid.
- Two variants: Common Earnings Profit and Flexi Earnings Profit
- Minimal Fundamental Sum Assured: Rs 5 lacs. No cap on most Sum Assured.
- Assured additions through the premium cost time period.
- So, on this plan, after the premium funds are over, you get a set quantity yearly for all times. After you go away, the nominee will get the demise profit.
LIC Jeevan Utsav (Plan 871): Dying Profit
Within the occasion of demise through the coverage time period, the nominee shall get:
Dying Profit = Sum Assured on Dying + Accrued Assured Additions
Sum Assured on Dying = Increased of (Fundamental Sum Assured + Accrued Assured Additions, 7 X Annualized Premium )
The demise profit can’t be lower than 105% of the whole premiums paid.
Now, right here is spanner within the works.
Given the system for Sum Assured on Dying (SAD), it’s potential that the SAD might not exceed 10 X Annualized premium.
If Sum Assured on Dying doesn’t exceed (or equal) 10X Annualized premium, the maturity/survival profit won’t be exempt from tax.
Notice that the demise profit will nonetheless be exempt from tax.
LIC Jeevan Utsav (Plan 871): Maturity Profit
Since this can be a complete life plan, the coverage will run till you might be alive.
Therefore, no idea of maturity profit right here. Very like a time period life insurance coverage plan.
However the coverage has survival advantages, as we talk about within the subsequent part.
LIC Jeevan Utsav (Plan 871): Common Earnings Variant and Flexi Earnings Variant
That is about survival advantages.
Beneath the Common Earnings variant, the policyholder will get earnings equal to 10% of the Fundamental Sum Assured yearly. Till the coverage holder passes away.
When does the earnings begin?
As per the next desk.
The Flexi Earnings Variant isn’t too completely different. It simply provides the choice to build up these annual payouts. So, you’ll be able to select to not obtain the payout and let the cash be with LIC.
The cash that’s not withdrawn will accumulate returns (curiosity) on the fee of 5.5% p.a. till you withdraw.
You possibly can withdraw as much as 75% of the amassed flexi profit (together with curiosity) as soon as in a coverage 12 months.
Since there’s not a lot distinction between the 2 variants, you’ll be able to change/specify the choice (common or flexi) till 6 months earlier than the beginning of the earnings profit.
LIC Jeevan Utsav (Plan 871): Assured Additions
Assured additions don’t have any position to play in calculation of survival profit.
Comes into play solely in calculation of demise profit.
Keep in mind Dying Profit = Sum Assured on Dying + Accrued Assured Additions
The calculation is sort of easy.
Yearly, till the tip of premium cost time period, the coverage will accrue Assured additions on the fee of 40 per thousand of Fundamental Sum Assured.
So, if the essential Sum Assured is Rs 5 lacs and the premium cost time period is 10 years, then the coverage will accrue 40 X (5 lacs/1,000) = Rs 20,000 value of assured additions.
Notice that these assured additions will accrue solely through the premium cost time period. As soon as the premium cost time period ends, no additional assured additions will accrue.
And this accrued quantity might be paid together with Fundamental Sum Assured might be paid to the nominee when the coverage holder expires.
LIC Jeevan Utsav (Plan 871): What are the returns like?
A superb half about LIC Jeevan Utsav is that you could calculate the XIRR (web return) from this plan earlier than you make investments.
The one assumption it’s important to make is longevity. How lengthy will you reside?
Why? As a result of the plan ends solely on demise of the policyholder.
For returns calculation, let’s assume that age of demise to be 90 years.
I copy the indicative premiums for Fundamental Sum Assured of Rs 5 lacs for various ages and premium cost phrases.
You’ll straightaway see a difficulty.
Sum Assured on Dying = Increased of (Fundamental Sum Assured, 7X Annualized premium).
For the reason that Fundamental Sum Assured is Rs 5 lacs, the minimal demise profit (Sum Assured on Dying) is lower than 10X Annualized premium for sections spotlight in RED.
In these instances, the survival profit might be taxable.
Therefore, with shorter premium cost phrases, it’s possible you’ll face this tax downside.
In case you are on this plan, do contemplate this side and select premium cost time period accordingly. Moreover, the Union Price range 2023 made maturity/survival profit from conventional plans with cumulative annual premium exceeding Rs 5 lacs taxable. Take into account this side too.
A 30-year-old particular person buys 12-year premium cost time period plan with Fundamental Sum Assured of Rs 5 lacs.
The premium earlier than taxes shall be Rs 44,275.
The primary-year premium incl. of 4.5% GST shall be Rs 46,267.
The premium within the subsequent years incl. of two.25% GST shall be Rs 45,271.
Survival profit
From the tip of the tip of 15th coverage 12 months, he’ll get 10% X 5 lacs = Rs 50,000 each year.
Since we now have assumed demise age to be 90 years, this cost will proceed for 90 – (30 + 15) +1 = 46 years.
Dying Profit
Assured additions will accrue on the fee of 40 * 5 lacs/1000 = Rs 20,000 each year for 12 years.
That makes it Rs 2.4 lacs.
Dying Profit = Fundamental Sum Assured + Accrued Assured Additions = Rs 5 lacs + 2.4 lacs = Rs 7.4 lacs
The XIRR for such an funding shall be 5.60% p.a. For demise on the age of 90 years.
If the demise occurs on the age of 80 years, the XIRR shall be 5.55%.
It’s essential to resolve if this can be a adequate return for you.
Notice: For this very particular case, because the Sum Assured on Dying (Rs 5 lacs) is greater than 10X annualized premium, the survival profit shall be exempt from tax.
LIC Jeevan Utsav (Plan no. 871): Do you have to make investments?
I’m not allowed to provide Black-and-white solutions.
Moreover, I’ve moved away from optimizing investments an excessive amount of. Now, I’ve grown to be OK with common investments that permit me to sleep peacefully. And you’ll have noticed this in my writings too.
As buyers, we might have completely different expectations from an funding product. As an illustration, I could favor an funding with doubtlessly larger returns (and better threat) however it’s possible you’ll be comfy with common however secure returns.
In any case, private finance is extra private than finance.
Let’s take a look at the nice factors.
A easy product.
From an investor’s perspective, this product is straightforward to know and relate to. I pay Rs X each year for the subsequent 5-16 years. Thereafter, I get Rs Y each year for all times. Then, after demise, the household will get some quantity.
Assured. No scope for confusion. Very simple to know.
Whether or not I like this product or not OR whether or not the returns are good or unhealthy, these merchandise normally discover enchantment amongst many buyers.
I can say this confidently as a result of my shoppers ask me this query very often.
I’ve this behavior of attempting to optimize issues and suggesting complicated options (not essentially good). Effectively, you have got free will.
The Not-so-good factors
Regular lack of flexibility. You possibly can’t get up in the future and resolve to exit this funding. You received’t get a lot of your funding again when you exit pre-maturely.
The returns, despite the fact that assured, appear sub-par for a long-term funding. However that’s simply me. Your priorities/expectations could also be completely different.
Just a few factors you will need to contemplate
In case you are on this product, don’t ignore the tax angle.
As mentioned earlier on this publish, not all premium and premium cost time period mixture might meet the criterion for tax exemption (Minimal Dying Profit >= 10 X Annual Premium). Maintain this side in thoughts.
Within the instance I’ve thought-about, the survival profit is exempt from tax as a result of it meets the criterion. In your case and most popular mixture, that will not be the case.
The tax therapy can severely have an effect on your post-tax returns.
The returns from conventional plans additionally rely in your age. Each else being the identical, returns go down with entry age. I confirmed the returns for a 30-year-old. Your age could also be completely different.
The great half is that you could calculate your XIRR upfront (earlier than even buying the product). And resolve whether or not the returns are adequate for you.
Moreover, don’t forget concerning the tax change that occurred earlier this 12 months about tax therapy of conventional plans. For the normal plans purchased after March 31, 2023, if the cumulative annual premium exceeds Rs 5 lacs, the maturity/survival profit proceeds from such plans might be taxable.
Further Hyperlinks/Sources
LIC Jeevan Utsav Brochure and Coverage Wordings on LIC Web site
Disclaimer: Registration granted by SEBI, membership of BASL, and certification from NISM on no account assure efficiency of the middleman or present any assurance of returns to buyers. Funding in securities market is topic to market dangers. Learn all of the associated paperwork rigorously earlier than investing.
This publish is for training objective alone and is NOT funding recommendation. This isn’t a suggestion to speculate or NOT put money into any product. The securities, devices, or indices quoted are for illustration solely and are usually not recommendatory. My views could also be biased, and I could select to not deal with elements that you simply contemplate vital. Your monetary objectives could also be completely different. You might have a unique threat profile. It’s possible you’ll be in a unique life stage than I’m in. Therefore, you will need to NOT base your funding choices primarily based on my writings. There isn’t a one-size-fits-all answer in investments. What could also be a very good funding for sure buyers might NOT be good for others. And vice versa. Due to this fact, learn and perceive the product phrases and circumstances and contemplate your threat profile, necessities, and suitability earlier than investing in any funding product or following an funding strategy.
